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Snap Into Earnings

$SNAP Reports Earnings after the Bell today, and is pricing in an expected move of around $5.60 by Friday’s close.

The past four quarters $SNAP has either surprised and beat estimates, or has been neutral with consensus. There has been no big misses this past year, but with a consensus of around ($0.01) could $SNAP over exhausting its luck?

This Earnings will be one to watch, not only because of the recent Truck-Sized hole that keeps reappearing between the Nasdaq and the rest of the market, but because $SNAP must re-establish itself as a premiere social media network once more. The rise of Tik-Tok globally the past two years, along with Instagram Reels and YouTube shorts have been seemingly shoving $SNAP to the back of the pack.

SNAP Daily Chart (TC2000)

Go to the Charts

On the Daily Chart we can see that the recent Tech sell off has pushed us down into oversold territory with RSI and Stochastics both coming in at 38 and 40 respectively. Obviously that sell off did not last long and we had a beautiful save in $SNAP with a nice bounce right off the 61.8 Fib Level.

Currently we are trading right in-between the 50 SMA and the 9 EMA, but that 9 EMA may be breached again before close, although the lingering 38.2 Fib Level will put a hard stop to any crazy pre-earnings moves.

SNAP Weekly Chart

The Weekly Chart here shows us the price action starting from the beginning of the year, and as we can see, SNAP has had some ups and downs, but more or less has been staying in that 50-70 dollar range, while slowly creating some higher lows.

SNAP 30m Chart

The 30m presents us with an odd descending wedge that just recently had a break out the past 3 days. Struggling with the 9 EMA has been the story today, but could we be just creating an handle on this cup?

This chart also gives us a closer look at the immediate resistance, which is currently at the mid $43 level. RSI is also oversold in here as well as the Stochastics coming in at 35.70 and 22.07 currently.

Plays For Earnings

By now you probably have an idea of how we like to participate in Earnings Reports, and what we always preach and find to be the highest probability of profits over Earnings would be to Sell Premium. Earnings Catalysts always bring a wealth of Implied Volatility which drastically decreases immediately after the report. By Selling Premium we are putting this so called “IV Crush” into our favor, and the greater the crush, the greater the return on profit. We will provide 2 Ideas below, which will do just that.

Trade #1

The first trade we will provide will be the most Risky play. A lot of people play Thursday AMC (After Market Close) Earnings by placing Options trades in the next day expiration cycle (1 DTE). By doing this, you can realize your profit much quicker, but you will also be offering yourself up to more risk. The Theta will be much higher as will the Vega, but in doing so the Gamma Risk dramatically increases, so the rate of change in your Deltas could have a huge effect on your position. So we need to keep this in mind before we place the position on.

We are currently looking to place a Strangle in the July 23rd Expiration Cycle. We previously stating that Options Trader’s are pricing in an expected move of around $5.60 by tomorrow’s close, so when need to keep this in mind when placing shorter dated Strangles.

The Short Strangle we are looking at will be the 55/70 (55 Short Put and 70 Short Call). This is currently trading for around $1.01 and gives us a little bit of short Delta at -3, with a Theta of 67 and a POP of 77%. Because of the Risky nature of these Shorter dated plays we look to exit the position as soon as possible the next day. This play will Cost around $620 to put on with our max loss on the down side being assignment at $55. Although $SNAP has been trading between the 50-70 range over the past year, given the Oversold nature of this stock, owning at 55 short term would not be the worst thing in the world. You can see below that this trade will make money if SNAP stays between 55 and 70.

Courtesy of Tastyworks

Trade #2

In our Second trade we will play a little less aggressively by going into the August Monthly Cycle.

In this expiration we will also be looking to take advantage of the High IV (IV Rank at 22) by selling a Short Strangle. In here we are also selling the 55/70 Strangle, but notice our Delta’s are dramatically increased. Whereas the cost of this trade is the same as the previous ($620), our Delta’s in this month are right around the 25 Delta mark rather than 1 Standard Deviation. By doing this we are increasing our Theta because the Premium found in closer to In the Money Options is much higher.

You may be wondering well why is this trade considered less Risk than the previous if the strikes are the same? Well we are giving ourselves more time to be right in this trade. And not only giving ourselves time to be right, but also more time to manage and adjust according to what happens over the next week or so.

Like the other trade the max loss to the downside here is assignment at 55, but in this trade we are collecting 3x more Credit than the first at around $3.20, with our Delta at -5 and Theta at 11.4 and a POP of 66%.

Courtesy of Tastyworks

All in all we like to play these Short Strangles on Stocks under $100 for Earnings because although our risk is undefined, we can collect the most premium, and the stocks are cheap enough where we do not mind getting assigned or getting shares taken away.

How would you play this stock?

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